After struggling for months under the strain of an ambitious and costly off-shore expansion, Dense-Pac Microsystems Inc. said Wednesday that it has filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code and will seek a bailout from the English investor that already has assumed control of the small Garden Grove electronics maker.
The petition, filed Tuesday in Santa Ana, listed assets of $3.7 million and liabilities of $3 million as of Nov. 30, 1986. Dense-Pac's largest creditor is Union Bank, which loaned the company $1.1 million.
In separate papers expected to be filed with the court today, Dense-Pac is proposing an interim financing agreement with Electronic Memories Ltd., a British electronics maker which owns 8.5% of the company's shares and controls its board of directors.
Took Control of Board
The agreement is designed to allow Dense-Pac to continue operating without interruption, according to Tony Macedo, the company's new chairman and a co-owner of Electronic Memories. Macedo and two other representatives of Electronic Memories took control of Dense-Pac's board Tuesday following the filing of the bankruptcy petition.
According to Macedo, Dense-Pac, which became a public company just one year ago, ran into trouble in mid-1986 after incurring higher-than-expected costs in building a new manufacturing plant in Puerto Rico. The cash drain, he added, was compounded by an unexpected drop in sales.
"If they had just had another $2 million, they could have held on," Macedo said. "They just spent too much money to take the manufacturing off shore."
In its most recent quarter, ended Nov. 30, 1986, the company reported losses of nearly $2.1 million on sales of $757,100. For the first nine months, the company lost $2.4 million on sales of $2.6 million.
Macedo said Electronic Memories is willing to give Dense-Pac a letter of credit for $550,000 as security for its $1.1-million loan from Union Bank--a loan currently in default. The investors also are willing to advance the company additional operating cash, he said, which could be converted into a majority holding of Dense-Pac stock.
The proposals must be approved by the bankruptcy court judge.
Macedo said Electronic Memories' agreement with Dense-Pac earlier this week allowed it to replace three board members with its own representatives.